In Aereo's Supreme Court Hearing, Two Sides Appear Evenly Matched

The Supreme Court heard oral arguments this morning in a case that will decide the fate of Aereo, a young New York-based company that streams local broadcast television to customers' computers, phones and tablets for $8 dollars each month.

Aereo customers can view many of the same local television channels accessed for free by those who use more conventional "bunny-ear" antennas. The company's technology also enables customers to record and store television programs.

The broadcast networks, which include ABC, NBC, Fox and CBS, accuse Aereo of unlawfully transmitting their copyrighted TV content without paying for licenses. Aereo argues that its service is the legal equivalent of selling customers an antenna and a DVR. The only difference: its service operates in the cloud and charges a monthly rental fee rather than a lump sales price.

The Justices won't announce Aereo's fate for at least a few weeks.

The case hinges on the question of whether Aereo's technology constitutes a "public performance" under copyright law. (A purchaser of copyrighted material has the right to a "private performance"--watching a movie at home, for example, but not a public one, i.e. displaying that movie in a theater to paying customers.) The company previously prevailed in the face of broadcasters' lawsuit in both the Second Circuit Court and a New York District Court. A judge in Utah ruled against the company.

Until the Supreme Court agreed to take the case in December, Aereo faced the prospect of repeated legal challenges in each market that provides service. The court's decision will likely decide the company's fate once and for all.

The Hearing

The two sides were well matched in this morning's hour-long hearing. Paul Clement, a former Solicitor General who's argued more than 70 Supreme Court cases, represented the broadcasters while David Frederick, who's argued more than 40, represented Aereo. Both remained poised in the face of a barrage of questions from the justices.

Frederick began the hearing with a 20-minute argument, but he was quickly cut off by Justice Sotomayor who pushed him to determine if Aereo should be considered a cable company, a distinction she felt relevant. Frederick said that they should not.

Justice Breyer, who repeatedly expressed his anxiety about the case, soon interjected to say that he remained concerned about how a decision in favor of the broadcasters would affect other cloud-computing companies.

Justice Sotomayor continued this line of thought and seemed to revel in citing different technologies--Dropbox, iCloud, Roku and Simple.TV were just a few of the names she mentioned over the course of the hour--and asking lawyers to make distinctions between them and Aereo. At one point she gave the example of a coaxial cable supplier and asked Clement, "How do I avoid a definition [of ‘public performance’] that might make those people liable?"

"Does it depend on where the hardware is?" Justice Kagan chimed in.

Clement turned to an automotive analogy to differentiate Aereo from cloud-storage companies like Dropbox.

“There is a fundamental difference between a service that provides new content...and a service that provides a locker,” he argued. He contested that the difference is akin to that of a car dealership and a parking garage. A dealership, in offering new cars, is more comparable to Aereo whereas services like Dropbox are more like a garage.

Justice Breyer still appeared unconvinced that the court could disentangle the Aereo verdict from the larger cloud-computing industry. “I don’t see how to get out of it,” he lamented.

Following Clement’s time, Malcolm Stewart, a Deputy Solicitor General, delivered a ten-minute argument on behalf of the government, which is supporting the broadcasters with an amicus brief arguing that the case won’t endanger cloud-computing as an industry.

Frederick then began his 30-minute argument by stressing that a negative decision would adversely affect the cloud-computing industry. He then stated that, “this is a reproduction right case masquerading as a public performance case." In choosing to focus on the question of "performance," he contests, the broadcasters have chosen the wrong legal grounds make their case.

During Frederick’s time in front of the Court, the Justices repeatedly demanded to know if Aereo’s technology, which consists of tens of thousands of dime-sized antennas assigned to individual transmissions, was designed solely to stay within the narrow realm of legal precedent.

Frederick argued that, in addition to legal reasons, the company had practical reasons to design its system this way. Constructing and placing large antennas on top of buildings would require the company to acquire costly, time-consuming city permits. And the tiny antenna strategy allows the company to scale its equipment in line with demand.

Chief Justice Roberts didn’t appear to buy it. “I mean, there’s no technological reason for you to have 10,000 dime-sized antenna, other than to get around copyright laws,” he stated.

Justice Breyer continued to display anxiety. “What disturbs me is I don’t understand what the decision for you or against you, when I write i,t is going to do to all kinds of other technologies. I’ve read the briefs fairly carefully, and I’m still uncertain that I understand it well enough.”

“That isn’t your problem," he continued. "But it might turn out to be.”

Amidst laughter, Frederick countered quickly: “Let me try to make it their problem.” He continued to make the case that a decision in broadcasters' favor will narrowly redefine "public performance" to imperil cloud services.

Following Frederick's arguments, Clement was given another three minutes for a rebuttal, though the justices seemed unimpressed. Towards the end of his time, Justice Scalia appeared impatient.

I cover entrepreneurs, people who create value (and make money) out of the ideas in their heads. I spent three years on staff at Forbes before leaving to start Haymaker, a PR firm for startups, in May 2014. (Don't worry, I never write about m...